Starting a business in the UAE can be extremely rewarding, but there are many things to consider. PRO Partner Group’s James Swallow and his team have helped hundreds of organizations and foreign investors build a profitable presence in the United Arab Emirates, Qatar, and Oman. Here he passes on his valuable know-how.
1. Where do I start a business in the UAE?
There are 7 different emirates in the UAE, which in many areas are part of cross-national federal legislation, but have very different market conditions and often different local legal requirements.
There are two important considerations when deciding which emirate is right for your company - market demand (target customer location) and legal requirements. Each emirate has different regulatory requirements, entry costs, business licenses, and set-up fees.
The markets in the two largest emirates, Abu Dhabi and Dubai are also very different in certain industries, and it is important to research the advantages and disadvantages of each location for your business type. PRO Partner Group can help start-ups at this stage.
2. Which legal form is best suited for starting a business in the UAE?
There are three legal forms for foreign companies in the UAE:
- an institution/one-person company (owned by one person)
- a limited liability company / GmbH (owned by two or more persons or companies)
- a branch of a foreign company (100% owned by a foreign company)
The rules, regulations, and fees are very different and depend on the nature and character of your company.
There are several authorities in Abu Dhabi and Dubai that license new businesses. You need to make sure which legal form is appropriate and then investigate which authority grants the business license (and other required licenses). A company like PRO Partner Group can help you get the right information to prepare the right facility with the right activities.
3. Do foreign investors need a local sponsor?
If you choose to start your business in a free trade area, a separate local sponsor/partner is not required - the free trade area itself effectively becomes your local sponsor, and all governmental and property-related matters must be handled through it. If you want to set up an Onshore GmbH (or a branch or one-person company), you must have an Emirati citizen or 100% Emirati company as a partner or sponsor to register the company.
According to UAE law, with a GmbH structure, 51% of the shares must be owned by your local Emirati partner or UAE business partner, but this does not mean that the same share of profits must be distributed to these partners. An agreement with your local partner may provide that the majority of the profits and control over management remain with the foreign party, which owns 49%.
If you choose to register the company as a one-person company, which by definition is a company that belongs to only one person, then a foreign person may own it 100%, but must be a UAE citizen (or a UAE company) as a service provider (a so-called "National Service Agent (NSA)") for the facility.
A foreign office may also be 100% owned by a foreign company, with a UAE citizen (or UAE company) acting as a National Service Agent (NSA). In both cases, the individual or the company is 100% liable for the establishment or establishment and must demonstrate qualifications and experience in the field in question. The sponsorship requirements and regulatory requirements differ depending on the license type and legal form - for example, a branch cannot usually trade products.
4. What is a free trade area?
A UAE free trade zone is a special economic zone that is usually connected to a port or connected to an industrial sector. The advantage of free trade zones is that they allow 100% foreign ownership. This means that the foreign investor can own the company entirely in the UAE without a separate local sponsor. Some other benefits include 100% repatriation of capital and profits, 100% exemption from corporate and income tax, and exemption from all import and export duties.
There are a few limitations to keep in mind:
- A company in the free trade zone is normally not allowed to offer products or services outside of this zone and must go through locally appointed distributors that are set up 'onshore'
- which means that you cannot have a shop front unless it is in the free trade zone itself.A 5% customs duty is usually applicable when a company sells the free trade area to the UAE
- the free trade area is considered not to be within the UAE. Employees who hold a visa issued by a company operating in a free trade area must work in that free trade area from the company's office.
5. What is a branch?
Some companies choose to open a branch of their existing company in the UAE. For example, a UK company may set up a branch of this UK parent company in the UAE. A branch is treated as an extension of the foreign company, which remains legally liable for its activity. A potential disadvantage to consider at a branch is tax. All taxes must be paid in the jurisdiction of the parent company. As the UAE has a favorable tax environment, this can lead to additional costs for the company.
6. Do different types of companies need special permits or do they have special requirements?
Yes, in any case. The different legal forms of companies each have specific requirements. Sole proprietorships, limited liability companies and branches of domestic and foreign companies have to meet certain specifications before granting an initial license and finally a full business license. A law firm or company can help you understand exactly what is required for your company and your specific job.
7. How much time and money do I need to start a business in the UAE?
It actually depends on the type of company you want to start and the industry you want to operate in. On average, it is recommended that you plan at least 2 months to start a business. This gives time to compile the relevant documents, to translate them and to obtain official permits.
An important consideration for a company in the free trade area is office costs depending on the number of employees - this is usually the largest part of the initial and ongoing costs of setting up in a free trade area and will be added to the fees mentioned above. For a company owned by an individual (with a virtual office), the usual budget range is around AED 20-50,000 for free zone fees.
For an LLC onshore company, it is advisable to consider an initial budget of approximately AED 100,000 or higher as you have to take into account some fixed costs such as government license fees, legal and facility costs, mandatory minimum office space requirements and visa application fees.
PRO Partner Group can advise you on the implementation of your individual business model. The PRO Partner Group gives you a realistic picture of how much money you have to invest and how long it takes before you can open your business.
8. Need an office in the UAE?
You cannot register a company without first signing an address rental agreement. In Abu Dhabi, the minimum area is 14 square meters in Dubai 200 square meters - the area must normally be provided with an outer door and must be checked for conformity.
Some free trade zones offer the option of renting a desk or space that you share with other small businesses.
If you need office space, you must first register the company to receive the documents that will allow you to rent the office space. If you want to rent office space in the UAE (i.e. not in a free trade zone), you need a full Onshore UAE Trade License.
The size of your office will largely determine the number of people you can employ, and some activities will need specific office types and locations - for example, retail activities will require an office on the ground floor with a shop front.
9. Does it help to have local advice when starting my company?
Finding the right advice on site can save a great deal of time, money and stress.
The PRO Partner Group experts specialize in advising foreign investors on how to find the most efficient and profitable way to start a business in Abu Dhabi, Dubai, the rest of the United Arab Emirates, Qatar and Oman.
10. What is the next step in starting my business in the UAE?
Do some research and start planning!
The UAE can be a great place to start a business, but you have to do your homework. A good place to start is to connect with other people in a similar industry who have already taken the step. Networking, especially between people from the same or similar industries, can give you important feedback on your ideas and their feasibility. You can also do research online.
Start developing a business and marketing plan, taking realistic costs and timeframes into account. And speak to an expert in the region who has in-depth knowledge of starting a business. The DAFZA can give you a realistic perspective on starting a company in the Gulf region.